Trading-- systematic or discretionary ?? Part-2

In Part-1 we saw that the 'system' based softwares are looking for that straight up rules based step by step system that if "a" is followed by "b" and then "c", you "take the trade every time, the numbers will be favorable and you will walk away with a profit over time." That simply does not work because it is not possible to reduce trading decisions to a simple set of rules or patterns to be applied blindly.

The market dynamics can and will shift discretely and so will the probability continuum of the criteria you have set. They can and will change forever ----

These principles are:

• Markets alternate between trends(range expansion) and trading ranges(mean reversion) ;
• Trends are more likely to continue than to end.
• Trends, when they do end, usually end in one of two specific ways consolidation for further up/down move or accumulation/distribution for reversal.

Understanding the difference between how markets behave in trends and trading ranges,how it moves between the two phases and whether the trading range would be followed by continuation or reversal---- is perhaps the first, and most important, skill in technical analysis.

And it is these 'shifts' in market behaviour which add randomness to it and which cannot be caught by a (single) system based software that requires 'human touch' for optimal handling and fructification.

And thus enters the Discretionary Trader

Biggest hurdle for a Discretionary Trader, assuming he learns/unlearns the optimal use of technical analysis, is his emotions --- fear,greed,hope,regret and elation -- which keep on overwhelming his rational decision making.

A very well known fact about the traders is that 95% of them fail to earn consistently from the markets.
Just ask yourself how much you know about

1. Market Structure: Starting from Exchanges,regulatory bodies,listings,participants' chain like liquidity managers,brokers,dealers engaged in warehousing,mutual funds,banks etc and their respective 'stakes' in the market;
2. Market Behaviour : To be analysed through Fundamentals/policy decisions and gauzed through technicals etc;
3. Knowing Self: Easier said than done

And you would know the cause of such a dismal success rate.

Postscript:

Happened to visit a Broker's office who had two framed photographs of his grandfather & father on the wall facing visitors and a third frame--- which had no photograph in it. On enquiry, he answered --'this frame is waiting for a successful trader' ---